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Renewable Technologies Renewable Technologies Investing in Renewable Wind Energy - Andreas Wahl
Renewable Technologies Renewable Technologies Investing in Renewable Wind Energy - Andreas Wahl
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Driven not only by the growing realisation that global warming needs to be addressed via reductions in emissions of carbon (and other harmful gases) which is heralding regulatory changes around the globe, the depletion of oil and gas reserves mean that alternative power sources need to be developed to replace not only the share of generation currently supplied by fossil-fuels but to also meet demand from a growing economy. While perhaps hard to imagine in the current crisis, long-term forecasts expect global energy demand to expand at an average annual rate of 1.6% to 2030 according to the International Energy Agency (World Energy Outlook 2008 Reference Scenario) driven by economic and population growth meaning energy demand then will be 45% higher than now. Wind power – the most economical renewable power to dateThe most established and thus far the most economical of the alternative power generation forms is wind power. Kick-started by regulatory changes and subsidisation in the 1990s the industry has achieved and maintained substantial growth reaching cumulative installations of 122GW at the end of 2008. In spite of the current credit crunch induced expected stunt to investments, the industry is forecast to continue to expand at over 15% pa for the next 5 years at least with annual installations due to rise from around 28GW last year to nearly 60GW by 2013 thereby lifting global installations to some 350GW. A combination of technological progress (increased turbine size, lighter constructions, control software) and economies of scale have helped lower power generation costs from this source drastically in recent years making wind power increasingly competitive. In locations with high wind speeds and good grid infrastructure and subject to financing, wind power can already be more competitive than conventional power sources even without subsidies. Pioneers like Denmark, Germany and Spain have led the way generating over 20%, 7% and 11% of electricity from wind power in 2008. By comparison, with only about 0.5% of electricity from renewable sources, the UK is lagging far behind its peers in spite of having amongst the best wind resources in Europe as nimbysm and planning/permitting hurdles have hindered development.While the UK undoubtedly offers substantial growth opportunities in wind power – especially offshore – and, indeed, needs to step up its investments substantially if it wants to meet its renewable obligations agreed to under EU legislation, the real action occurs elsewhere: China and the US are expected to be by far the largest markets for wind power in coming years. Past growth and current growth projections for the Chinese market are nothing short of spectacular. Having roughly doubled its installed base annually in recent years new installations in 2008 once again doubled by over 6GW to reach a total of over 12GW. The prospects for future growth in the Chinese market also remain very good. In response to the financial crisis, the Chinese government has identified the development of wind energy as one of the key economic growth areas, and in 2009, new installed capacity is expected to nearly double again. At a rate of 10-12GW pa, China is on track to overtake Germany and Spain to reach second place in terms of total wind power capacity in 2010 and would mean that China would have met its 2020 target of 30GW ten years ahead of time. The USA was the largest market for new wind turbine installations last year, adding more than 8.5GW and lifting its total installed base by 50% to over 25GW. While new installations this year will be hampered by the financial crisis, measures introduced by the new administration are expected to support the industry and contain the negative impact. Forecasts for this year vary widely between 5 and 6.5GW of new installations because of the uncertainty over funding with the onset of the credit crunch last year but general expectations are for strong growth to resume from 2010. By 2013, new installations in the US are expected to run at more than 15GW annually. Turbine manufacturers and utilities are the most liquid ways to investThe universe of stocks for investors to participate in is quite small from a purely UK perspective. Only about twenty or so companies listed on the London Stock Exchange can be considered pure plays in renewable/clean energy terms. This are companies with a fairly diverse range of activities and includes several overseas businesses that are listed on London’s Alternative Investment Market (AIM) for emerging companies. Including companies listed elsewhere in Europe the number of potential investment opportunities increases to over 50 with more than 80 companies on a global level. Below we briefly introduce the companies that are primarily active in wind power and that are listed on European exchanges or the London Stock Exchange including AIM but ignoring companies with a market capitalisation of under £10m.Apart from direct investments in a wind power project or turbine there are two main ways to play the wind power theme: investing in a service provider like a project developer/operator/utility or in a hardware manufacturer. The former group in the UK includes AIM-listed smaller companies Novera Energy, Renewable Energy Generation and Renewable Energy Holding. The second group comprises Belgian company Hansen Transmissions, the world market leader for large wind turbine gearboxes, listed on London’s main market and the US-based but AIM-listed Clipper Windpower, a manufacturer of lighter and more compact wind turbines in the multi-MW class, promising lower power generation costs than some of its more established competitors. At the European level, investment opportunities in wind power widen considerably and include the leading wind turbine manufacturers Vestas of Denmark and Gamesa of Spain, as well as the smaller German manufacturers Nordex and Repower. In addition, there are the renewable energy subsidiaries of the utilities Iberdrola of Spain, Electricité de France (EDF) and Energias de Portugal (EDP). On the turbine manufacturing side, Vestas, one of the pioneers of modern wind turbine technology, is the global market leader. Having shipped turbines with a combined capacity of some 5580MW in 2008, Vestas remains market leader with a share of new installations in 2008 of close to 20%. Vestas’ market share has fallen in recent years from close to 30% as mainly local manufacturers service demand in high-growth markets like China. Gamesa, the Spanish market leader was ranked third globally with a share in new installations of around 12% last year. Both Vestas and Gamesa operate globally though Gamesa benefits from a much larger home market and both are set to generate much of their future growth through further expansion in the main markets of the USA, China and India. While the current financial crisis and comparative reluctance to support wind power in the UK have led Vestas to decide to close capacity in Europe and the UK, the company is persisting with significant investment plans in the USA and China and is maintaining its target to produce 10GW of wind turbines by 2010. Hansen Transmissions is one of the world’s leading manufacturers of gearboxes for the wind turbine market, concentrating on gearboxes with a capacity of 1.5MW and above. The company supplies five of the world’s largest wind turbine manufacturers, namely Vestas, Gamesa, Siemens, Suzlon and REpower. With an overall market share of about 27%, Hansen is the second largest manufacturer of wind turbine gearboxes. However, in the segment for gearboxes for large turbines with a capacity of 1.5MW and more, Hansen is the world’s leading supplier with a market share of over 50%. The company has had a varied history with several industrial and financial owners in the past 20 years. In 2006, Suzlon Energy, the Indian wind turbine manufacturer currently ranked fourth in terms of global new installations, acquired Hansen. Hansen was listed on the London Stock Exchange in December 2007, with Suzlon retaining a 61% stake. Hansen is in the process of establishing significant manufacturing capacities in India and China in addition to its main plants in Belgium. Clipper Windpower is a US based but London AIM listed manufacturer at the early stages of commercialising a new wind turbine design. The Liberty 2.5MW turbine makes use of a novel power train, which Clipper claims allows lower power generation costs through the combination of lighter weight and higher output, together with lower operating costs through lower maintenance and service requirements. Clipper also develops wind farms and has a large portfolio of projects, mainly in the USA, that it plans to realise over the next few years. Following considerable early teething problems with the new turbine design, the company has accumulated substantial start-up losses and is running about two years behind original production targets. However, with additional funding in place the company represents a rare direct play on the projected growth in US wind power. In terms of market capitalisation, the largest European renewable energy stock is Iberdrola Renovables of Spain. Spun off from its parent company Iberdrola in 2007, IBR is by far the largest investor in wind power with an installed base of over 9GW and a project pipeline of more than 56GW. In addition, the company operates solar power plant and is an early stage investor in other renewable energy generation technologies like marine power. EDF of France and EDP of Portugal have emulated IBR’s example by also separately listing their renewable power subsidiaries, thus both raising their profiles and funds for future investments. Following the acquisition of Horizon in the US, EDP Renovavais is the third largest developer and operator of wind power plants (behind IBR and Florida Power Light of the US) with an installed base of over 5GW and a project pipeline of potentially a further 28GW. With around 2GW in wind power generation assets installed and a development pipeline of some 14GW EDF-Energies Nouvelles is somewhat behind the leaders but is still one of the largest players in the field. Small, specialist UK-based developersAt the other end of the size spectrum are the UK’s Novera Energy, Renewable Energy Generation and Renewable Energy Holding, all listed on AIM. Novera Energy (NVE) owns and develops renewable energy assets in the UK. It currently has a portfolio of small renewable power plant with a combined capacity of 148MW at 58 sites across the country with power currently generated mainly from landfill gas (87MW), wind (45MW), hydro, and industrial operations. Future growth is to come mainly from wind power and NVE has a development pipeline targeting wind power installations of 250MW by 2011.Renewable Energy Generation (RWE) is a holding company with three principle activities: AIM PowerGen Corporation, Cornwall Light & Power REG-Bio-Power. AIM PowerGen is an independent wind park developer in Canada with a development pipeline of some 3000MW of which 40MW have been installed to date. Cornwall Light & Power currently operates six wind farms in the UK with a combined capacity of 21MW and it has a development portfolio of some 200MW in the UK. REG Bio-Power operates electricity generation plant fuelled by refined used cooking oil it currently has a capacity of 4MW in the UK. Renewable Energy Holding (REH) is a UK based investment and development company currently with around 40MW of wind power plant operating in Germany as well as a 1MW landfill gas site operating in Wales. The company has a development pipeline of some 500MW of which two projects (40MW in Poland) and 69MW in Wales) are in the late stages of development. In addition, REH owns proprietary technology to a marine power generator called CETO, which it is looking to commercialise through co-operation agreements including one with EDF-EN. The table below summarises the UK/European clean technology and renewable power generation universe.
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